Abstract.

Many international corporations in the United States pay little or no national tax and violate the spirit of the law by using tax loopholes and mechanisms such as shifting profits to subsidiaries in tax havens. This rampant trend of corporate tax avoidance results in underfunding of social infrastructures and diversion of corporate tax burdens to other entities. In contradiction to traditional profit maximization, emerging corporate social responsibility (CSR) theory which incorporates stakeholder and legitimacy theory asserts that appropriate corporate tax payment is an element of CSR. The purpose of this study was to investigate the relationships between tax avoidance and measures of corporate social responsibility and tax disclosure in CSR reports of U.S.-based multinational corporations. An overall measure and three dimensions of the environment, social, and governance of CSR were evaluated in relation to tax avoidance. This empirical study used non-parametric correlational analysis and binary logistic regression to assess the relationships of the proxies of Thomson Reuters ESG metrics of CSR corporate engagement and a review of tax disclosure in CSR reports with corporate effective tax rates operationalizing tax avoidance. U.S.-based MNCs from the S&P 500 Index comprised the sample. The correlational tests showed consistent statistically significant but very weak negative relationships between the variables. This evidence indicated that high CSR ratings were related to lower effective tax rates. The binary logistic regression tests revealed that CSR composite scores had some contributive value in predicting corporations would be in a low tax group. The evidence from this study supports research that found CSR related negatively with tax avoidance. The inference is that executives of multinational corporations in the United States listed on the S&P 500 index do not view corporate tax as an element of CSR. More studies are needed to clarify the contradictions of research on tax avoidance and social responsibility with corporations.